Trigeorgis Binomial Tree with Coupon Present Value Deduction: A Novel and Accurate Method for Pricing Coupon-Bearing Bond Options

Project Overview: To address the pricing bias and discontinuities in traditional models (such as CRR and standard Trigeorgis) caused by the inadequate treatment of coupon payments, this project innovatively integrates a "Present Value of Coupons Deduction" mechanism with the Trigeorgis Binomial Model. By transforming the pricing logic of coupon-bearing bonds into an equivalent paradigm within a zero-coupon framework, this implementation effectively mitigates price "jumps" from an engineering perspective. Core Advantages: High-Precision Validation: Numerical experiments demonstrate that compared to the traditional CRR model, the pricing error is reduced by 86.8%; compared to the standard Trigeorgis model, the error is reduced by 83.7%. The results are highly consistent with high-fidelity Monte Carlo benchmarks. Independent Originality: The codebase was developed independently by the author and has been verified by JPlag and Codequiry similarity detection tools, ensuring no plagiarism of open-source libraries, commercial code, or academic repositories. Underlying Transparency: Implemented in Python 3.x (NumPy-based) without reliance on third-party financial engineering libraries (e.g., QuantLib), ensuring full transparency of the underlying algorithmic logic and ease of reproducibility. Deliverables: Complete source code of the model implementation. Numerical experiment and validation scripts. Comparative test data against official QuantLib implementations.